Serious Contracting Problems Place Nonprofits at Risk in New York

Doug Bauer, who heads the Clark Foundation in New York City, is speaking out about the state of nonprofit contracting in the city and the state of New York: “It has been a quiet crisis that I think can no longer be quiet. The nonprofit human services agencies that manage the social safety net in this city have really been systematically starved financially by the city and the state.”

“We can worry about what’s going on in D.C. and we’re going have big advocacy battles about domestic spending in this country, and we should,” Bauer continues. “But at the end of the day, this issue sits ultimately at City Hall. They have got to figure this out.”

The city contracted for $15.3 billion in nonprofit services during FY 2016.

According to advocates, the crisis facing nonprofits is visible to City Hall. The Mayor’s Office of Contract Services responds to about 10,000 requests for assistance from non-profit organizations each year. Of those organizations, 18 percent are insolvent, 50 percent are facing deficits and cash flow issues, and while their clients are “living paycheck to paycheck, the employees are living payroll to payroll,” according to Allison Sesso, executive director of the Human Services Council of New York.

Not only do city and state contracts not pay full costs of delivering services, requiring nonprofits to expand fundraising for every contract dollar they expect, but ratifying them can take many months and payment on them is habitually late, leaving many organizations with serious cash flow problems that take time, effort, and money to manage.

Larry Lee, the executive director of Womankind, a small nonprofit working with victims of gender-based violence, confirms this problem and its absurd extremes, which are all too commonplace. “We have very major cash-flow problems. We’ve had contracts that don’t get registered in over a year. We’ve had audits before they even got us the money. So in fact, they’re auditing our own money. That’s death,” Lee says. “In a lot of ways they’re saying ‘too little, too late,’ or a ‘dollar short and a day too late’; and that really fits with what’s going on with the government.”

NPQ has written about this problem repeatedly, including two years ago when we covered a 2015 report from the office of the New York City comptroller that documented that 77 percent of contracts were still being processed late despite there being a monitoring and fine system in place. We wrote then that:

According to the report, 3,568 of 4,630 contracts, or 77 percent, were late. While this is an improvement over 2013, when the contracts were late 87 percent of the time, DiNapoli acknowledged that the improvement was insufficient and that trend has persisted over twenty years despite an attempt at reform instituted in the 1984 and 1991 Prompt Contracting Laws. In fact, his statement said, the average proportion of contracts late each year over the last two decades has been 70 percent.

Under what conditions is this misuse of nonprofit contracting partners acceptable?—Ruth McCambridge

Ruth is Editor in Chief of the Nonprofit Quarterly. Her background includes forty-five years of experience in nonprofits, primarily in organizations that mix grassroots community work with policy change. Beginning in the mid-1980s, Ruth spent a decade at the Boston Foundation, developing and implementing capacity building programs and advocating for grantmaking attention to constituent involvement.

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